Take Arthur Laupus, whose story is told in a Bloomberg report. Laupus signed up for AARP's auto insurance policy because he was told that he would save money, an important consideration for people in their retirement years. However, Laupus discovered that his car insurance rate was double the average insurance rate—not even close to the savings he thought he was getting.
So, why did AARP charge Laupus so much for insurance? Apparently, the insurer took a cut of his premium before it was sent to the company that provided Laupus' insurance coverage. In fact, according to the Bloomberg report, AARP gets hundreds of millions of dollars from insurance companies that pay AARP to endorse their policies. Those royalties are built into the premiums that AARP members are charged, and they make AARP a pretty penny—$497.6 million in 2007.
Furthermore, AARP allegedly holds its clients' insurance premiums for up to a month and then invests that money, adding another $40 million to its revenue. That's a lot of money to be making off people who are living in retirement and trying to save their money. Once again, it is retired people—those who really, truly cannot afford it—who are taken advantage of.
And they are being taken advantage of by an organization that they count on. AARP, formerly known as the American Association of Retired Persons, is a widely trusted organization. Retirees turn to AARP for insurance, tax returns and estate planning. So why are they being promised big savings only to pay more than the average person for insurance?
The answer, of course, is money. With AARP making more money off royalties from insurers, there is no incentive to fight to keep the costs of those premiums down.
Of course, this is in addition to allegations that AARP was involved in misleading marketing of its health insurance policies. For example, according to the Bloomberg article, AARP advertised its Medicare supplemental insurance as saving retirees thousands of dollars. However, the AARP/United Health policy cost $582 a year more than a lower-cost plan in New York and $428 a year more than a plan in Los Angeles—hardly a savings for retirees.
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Seniors living on a fixed income have to be careful about how they spend their money. They look to organizations that offer savings and value for their money, and believe these organizations will do right by them. They do not expect to be charged higher fees or be misled about their insurance policies. And they certainly do not expect that they will pay higher fees so that their insurer, one who is supposed to lobby on their behalf, can make a few extra hundred million dollars.